Given the information in the statement, I would call it a “Capital Loss” special. Nothing has been said about what happened to the general level of prices or about the purchasing power of the asset. Without such information, one can say nothing very interesting about the change in the price of one specific asset. It’s certainly possible that the price of an asset (call it shares of Lehman or Enron stock) can fall with or without inflation or deflation. I can’t tell what the purpose of the example is; hence, as Professor Gerard points out, Planet Money needs help.
They may need as much help as the US Senate who rejected Fed Board of Governor’s nominee Peter Diamond because he allegedly was not a macroeconomist.
Ah, those discerning folks who man our legislature.
One thought on “Which Planet Are We On? Indeed!”
I think you are right, Marty — he is conflating “currency” and “investment.” Here: “And deflation means that not just one investment, but all investments are worth less next year because the currency they are based on – like the U.S. dollar – is going to be worth less next year.” With deflation, currency is worth more next year, which is the key problem, I suppose. As Mr Krugman says, “when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. After all, when prices are falling, just sitting on cash becomes an investment with a positive real yield…” In other words, currency is worth more, not less.
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